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ROLE OF VOLUNTARY AGREEMENTS IN THE U.S. INTELLECTUAL PROPERTY SYSTEM

HEARING BEFORE THE

SUBCOMMITTEE ON

COURTS, INTELLECTUAL PROPERTY,

AND THE INTERNET OF THE

COMMITTEE ON THE JUDICIARY

HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRTEENTH CONGRESS

FIRST SESSION

SEPTEMBER 18, 2013

Serial No. 113–49

Printed for the use of the Committee on the Judiciary

(

Available via the World Wide Web: http://judiciary.house.gov

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BOB GOODLATTE, Virginia, Chairman F. JAMES SENSENBRENNER, JR.,

Wisconsin HOWARD COBLE, North Carolina LAMAR SMITH, Texas STEVE CHABOT, Ohio SPENCER BACHUS, Alabama DARRELL E. ISSA, California J. RANDY FORBES, Virginia STEVE KING, Iowa TRENT FRANKS, Arizona LOUIE GOHMERT, Texas JIM JORDAN, Ohio TED POE, Texas JASON CHAFFETZ, Utah TOM MARINO, Pennsylvania TREY GOWDY, South Carolina MARK AMODEI, Nevada RAUL LABRADOR, Idaho BLAKE FARENTHOLD, Texas GEORGE HOLDING, North Carolina DOUG COLLINS, Georgia RON DeSANTIS, Florida JASON T. SMITH, Missouri

JOHN CONYERS, JR., Michigan JERROLD NADLER, New York ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia MELVIN L. WATT, North Carolina ZOE LOFGREN, California SHEILA JACKSON LEE, Texas STEVE COHEN, Tennessee HENRY C. ‘‘HANK’’ JOHNSON, JR.,

Georgia PEDRO R. PIERLUISI, Puerto Rico JUDY CHU, California TED DEUTCH, Florida LUIS V. GUTIERREZ, Illinois KAREN BASS, California CEDRIC RICHMOND, Louisiana SUZAN DelBENE, Washington JOE GARCIA, Florida HAKEEM JEFFRIES, New York

SHELLEY HUSBAND, Chief of Staff & General Counsel PERRY APELBAUM, Minority Staff Director & Chief Counsel

SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND THE INTERNET

HOWARD COBLE, North Carolina, Chairman TOM MARINO, Pennsylvania, Vice-Chairman

F. JAMES SENSENBRENNER, JR., Wisconsin

LAMAR SMITH, Texas STEVE CHABOT, Ohio DARRELL E. ISSA, California TED POE, Texas JASON CHAFFETZ, Utah MARK AMODEI, Nevada BLAKE FARENTHOLD, Texas GEORGE HOLDING, North Carolina DOUG COLLINS, Georgia RON DeSANTIS, Florida JASON T. SMITH, Missouri

MELVIN L. WATT, North Carolina JOHN CONYERS, JR., Michigan HENRY C. ‘‘HANK’’ JOHNSON, JR.,

Georgia JUDY CHU, California TED DEUTCH, Florida KAREN BASS, California CEDRIC RICHMOND, Louisiana SUZAN DelBENE, Washington HAKEEM JEFFRIES, New York JERROLD NADLER, New York ZOE LOFGREN, California SHEILA JACKSON LEE, Texas

JOE KEELEY, Chief Counsel STEPHANIE MOORE, Minority Counsel

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C O N T E N T S

SEPTEMBER 18, 2013

Page

OPENING STATEMENTS

The Honorable Howard Coble, a Representative in Congress from the State of North Carolina, and Chairman, Subcommittee on Courts, Intellectual Property, and the Internet .................................................................................. 1

The Honorable Melvin L. Watt, a Representative in Congress from the State of North Carolina, and Ranking Member, Subcommittee on Courts, Intellec-tual Property, and the Internet .......................................................................... 2

The Honorable John Conyers, Jr., a Representative in Congress from the State of Michigan, Ranking Member, Committee on the Judiciary, and Member, Subcommittee on Courts, Intellectual Property, and the Internet .. 3

WITNESSES

Jill Lesser, Executive Director, Center for Copyright Information Oral Testimony ..................................................................................................... 7 Prepared Statement ............................................................................................. 9

Cary H. Sherman, Chairman and CEO, Recording Industry Association of America Oral Testimony ..................................................................................................... 12 Prepared Statement ............................................................................................. 15

Randall Rothenberg, President and CEO, Interactive Advertising Bureau Oral Testimony ..................................................................................................... 25 Prepared Statement ............................................................................................. 27

Gabriel Levitt, Vice President, PharmacyChecker.com Oral Testimony ..................................................................................................... 35 Prepared Statement ............................................................................................. 37

Robert C. Barchiesi, President, The International AntiCounterfeiting Coali-tion Oral Testimony ..................................................................................................... 50 Prepared Statement ............................................................................................. 52

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable John Conyers, Jr., a Representative in Congress from the State of Michigan, Ranking Member, Committee on the Judiciary, and Member, Subcommittee on Courts, Intellectual Prop-erty, and the Internet .......................................................................................... 5

Material submitted by the Honorable Judy Chu, a Representative in Congress from the State of California, and Member, Subcommittee on Courts, Intel-lectual Property, and the Internet ...................................................................... 64

Material submitted by the Honorable Doug Collins, a Representative in Con-gress from the State of Georgia, and Member, Subcommittee on Courts, Intellectual Property, and the Internet .............................................................. 85

APPENDIX

Material Submitted for the Hearing Record .......................................................... 121

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ROLE OF VOLUNTARY AGREEMENTS IN THE U.S. INTELLECTUAL PROPERTY SYSTEM

WEDNESDAY, SEPTEMBER 18, 2013

HOUSE OF REPRESENTATIVES

SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND THE INTERNET


Washington, DC.

The Subcommittee met, pursuant to call, at 2:03 p.m., in room 2141, Rayburn House Office Building, the Honorable Howard Coble (Chairman of the Subcommittee) presiding.

Present: Representatives Coble, Marino, Goodlatte, Smith of Texas, Poe, Collins, Watt, Conyers, Johnson, Chu, Jeffries, and Lofgren.

Staff Present: (Majority) Joe Keeley, Chief Counsel; Olivia Lee, Clerk; and (Minority) Stephanie Moore, Minority Counsel.

Mr. COBLE. The Subcommittee on Courts, Intellectual Property and the Internet will come to order. Without objection, the Chair is authorized to declare recesses of the Subcommittee at any time. We welcome all of the witnesses and others in the audience for to-day’s very important hearing I will now give my opening state-ment.

Good afternoon, and welcome again to today’s Subcommittee hearing on the Role of Voluntary of Efforts in the U.S. Intellectual Property System. Copyright owners have been dealing with the in-creasing acts of power sales of their property that is often aided by groups and Web sites that glorify theft. This Subcommittee has dealt with the issue for some time.

The Congressional Creative Rights Caucus which I Chair with the gentlelady from California, Ms. Chu, has also heard from art-ists impacted by the outright theft of their works. I am pleased to learn today of the voluntary efforts now underway to reduce piracy. These good works are the result of several companies and trade as-sociations that have invested their time and effort to cultivate best practice principles that help direct consumers to legitimate content while making it more difficult for pirates to operate. These agree-ments are a step in the right direction. They promote intellectual property, they improve the Internet marketplace for consumers and they have been established through a voluntary process.

I want to especially highlight the efforts by the Center for Copy-right Information as an example of what can be done. By letting

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ISP customers know about piracy that may be occurring using their Internet connections, ISP’s consumers may find that the wireless network has been hacked, or that their teenager needs to join a family meeting about responsible Internet usage. I am also pleased that the Center has taken a thoughtful approach to implementing an appeals system as well as creating an oversight panel of con-sumer groups.

While much work has been done, more work is required from other groups. I am interested in hearing how existing voluntary agreements can be utilized to foster new agreements in new areas, and if there is anything we can do to help promote the best prac-tices. As most of us know, private sector actions are oftentimes more efficient and effective than some regulation handed down by the Federal Government.

Thank you, again, for being here, and I look forward to hearing the testimony from our witnesses on today’s panel.

I am now pleased to recognize the Ranking Member from North Carolina, Mr. Mel Watt for his opening statement.

Mr. WATT. Thank you, Mr. Chairman. Two years ago, this Subcommittee held several hearings to ad-

dress possible legislative solutions to the epidemic of online piracy and sale of counterfeit goods over the Internet. Although the Stop Online Piracy Act was itself stopped, the problem of piracy was not, as I have noted on a number of occasions.

We are certainly not here to relitigate SOPA, but I do believe that the SOPA debate we had helped motivate an important shift in the willingness of some parties to engage more aggressively in negotiating to develop some of the best practices we are considering here today.

Indeed, some of the entities that fought vigorously to defeat SOPA are now constructive parties to voluntary agreements de-signed to combat the drain on our economy and the potential harm to consumers that online piracy and counterfeiting represent.

Over the past 2 years, government entities, nonprofit organiza-tions, academic institutions and industry stakeholders have all issued studies evaluating the problem. Recent examples include the July 2013 Department of Commerce Internet Policy Task Force re-port on copyright policy, creativity and innovation in the digital economy in which the task force noted ‘‘while the extent of the losses caused by online infringement is hard to calculate with cer-tainty, the proliferation of unlicensed sites and services making content available without restriction or payment impedes the growth of legitimate services.’’

In February, the Administration also reported on the cyber theft of trade secrets, and in May, the Nonprofit Commission on the Theft of American Intellectual Property found that the scale and complexity of the international theft of American intellectual prop-erty is unprecedented, including the rapid growth in online sales of counterfeit goods.

Earlier this year, Carnegie Mellon professor Michael Smith re-leased his findings on the impact of the Department of Justice en-forcement against the notorious MegaUpload site. In general, Pro-fessor Smith suggested that providing legitimate avenues to obtain content online, coupled with effective anti-piracy policies, rep-

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resents the best recipe for combating IP theft online. However, yes-terday a report entitled ‘‘Sizing the Piracy Universe’’ by NetNames painted a bleak picture regarding Internet-based infringement. The report, commissioned by NBC Universal, found that piracy of enter-tainment content has increased dramatically despite the growing number of legal options available to consumers.

Google also released a report last Friday entitled ‘‘How Google Fights Piracy,’’ outlining its efforts to curtail piracy and high-lighting how its services provide enhanced opportunities for cre-ators. However, this morning the Motion Picture Association of America, together with Chairman Coble and our colleague on the Committee, Ms. Chu, unveiled a study by Compete, ‘‘Under-standing the Role of Search in Online Piracy,’’ which reportedly de-tails how search engines like Google introduce consumers to Web sites dedicated to infringement.

The single common thread throughout each of these reports is the recognition that there is an ongoing vulnerability for U.S. intel-lectual property in the online environment. That threat is not only economic and is not limited to specific industries represented here. Counterfeit hard goods, especially pharmaceuticals, may pose an additional threat to safety risk for American consumers.

Futile efforts to curtail online infringement and counterfeiting does more than deplete the profits of U.S. companies and nega-tively affect the U.S. economy. It also opens our citizens to a vari-ety of predictable harms like identity theft, fraud, sickness or even death. Failure to address the problem may also make our cyber in-frastructure less secure and facilitate individual criminal activity or encourage criminal enterprises.

So it is important that these voluntary agreements and best practices are meaningful endeavors, not just window dressing. It is also important that our values of privacy, free speech, competition and due process are honored. But it is also important that those values are not fraudulently turned against us to invite or justify legislative paralysis.

I applaud the voluntary efforts of the various industry stake-holders both to confront the challenge and to embrace the opportu-nities that permeate the digital era. While these cooperative meas-ures may or may not be enough, I believe that our Subcommittee, which has jurisdiction over both intellectual property and the Internet, should encourage these collaborations, but it is also our responsibility to consider whether additional oversight or legisla-tive action is warranted as well.

I welcome the witnesses and look forward to the testimony. Mr. Chairman, I yield back. Mr. COBLE. Thank you, Mr. Watt. The Chair now recognizes the distinguished gentleman from

Michigan, the Ranking Member for the full Judiciary Committee, Mr. Conyers, for his opening statement.

Mr. CONYERS. Thank you, Chairman Coble, and we join in wel-coming our distinguished witnesses today.

Voluntary agreements, intellectual property law, should facilitate technological advances, while at the same time, protecting creators, I think that is what the hearing is all about, and we must continue ways to examine how we can prevent piracy and fight violations of

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copyright law. I think that is a worthwhile issue to examine here today in the Judiciary Committee.

Although these voluntary agreements have been a positive step, we must continue to develop solutions to address digital piracy. A primary goal is that we should have to continue to inform and change the behavior of the majority of users who want to enjoy con-tent legally, and I am hoping that these issues will be examined with the care and experience of our distinguished witnesses today.

I will put the rest of my statement in the record. Thank you very much, Chairman Coble.

Mr. COBLE. Thank you, Mr. Conyers. [The prepared statement of Mr. Mr. Conyers follows:]

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Mr. COBLE. We have a very distinguished panel today, and I will begin by swearing in our witnesses before introducing them. If you would, please, all rise.

[Witnesses sworn.] Mr. COBLE. Let the record show that each of the panelists re-

sponded in the affirmative. As I said before, we have a distinguished panel before us, and

I am pleased to introduce them now. Our first witness today is Ms. Jill Lesser, Executive Director at the Center for Copyright Informa-tion. Ms. Lesser is a long-time consumer protection, technology and copyright expert, and also serves as a board member for the Center For Democracy and Technology. She received her J.D. from the Boston University School of Law, and her B.A. in political science from the University of Michigan.

Our second witness is no stranger on Capitol Hill, Mr. Cary Sherman, Chairman and Chief Executive Officer for the Recording Industry Association of America, the organization representing the Nation’s major music labels. Mr. Sherman received his J.D. from Harvard School of Law and his B.S. from Cornell University.

Our third witness today is Mr. Randall Rothenberg, President and Chief Executive Officer of the Interactive Advertising Bureau, a trade association representing over 500 leading interactive com-panies that are responsible for selling more than 86 percent of on-line advertising in the United States. Mr. Rothenberg received his B.S. in classics from Princeton University.

Our fourth witness today is Mr. Gabriel Levitt, Vice President of PharmacyChecker.com. Mr. Levitt helped found the company in 2002, and is responsible for all business and research operations. Mr. Levitt received his Master’s Degree in International Relations from the American University, and his bachelor’s degree from Roger Williams University.

Our final witness today, Mr. Robert Barchiesi, is President of the International AntiCounterfeiting Coalition. Mr. Barchiesi received his M.A. from the University of Alabama and his B.A. from the John Jay College of Criminal Justice. It is good to have all of you with us today, gentleman and lady.

There is a timer on the desk that will alert you when your time is waning, rapidly vanishing. We try to employ the 5-minute rule. When the green light on the panel turns to amber, that is your warning that you have 1 minute to wrap up. Now, you won’t be keelhauled if you violate that rule, but try to wrap up on or about 5 minutes if you would do so.

Ms. Lesser, we will begin with you. I repeat, it is good to have all of you with us.

TESTIMONY OF JILL LESSER, EXECUTIVE DIRECTOR, CENTER FOR COPYRIGHT INFORMATION

Ms. LESSER. Chairman Coble, Ranking Member Watt, Ranking Member Conyers, and Members of the Subcommittee, my name is Jill Lesser and I am the Executive Director of the Center For Copy-right Information. I am pleased to be testifying on the issue of vol-untary initiatives aimed at protecting copyright in a digital age, a new area of cooperation and progress in a policy debate that has long been characterized by sharp differences of opinion.

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The Center for Copyright Information was established in 2011 as part of a groundbreaking initiative among the Nation’s five leading Internet service providers and virtually the entire movie and music industries. The agreement set out to stem the tide of digital piracy by accomplishing two goals: One, establishing the copyright alert system or CAS; and, two, creating an organization that could edu-cate users about the importance of protecting digital content while offering them a better way to find movies, TV and music online safely and legally.

In the two short years since CCI’s formation, we have success-fully implemented the Copyright Alert System and have begun a series of educational efforts aimed at helping users make better choices about the way they enjoy creative content. Still in its early stages, this initiative illustrates the importance of multi-stake-holder, market-driven solutions, and more generally serves as a model for addressing challenging technology policy issues through collaboration.

I have addressed the negotiations that led to the creation of CCI in my written testimony. Therefore, I will focus here on CCI’s cur-rent and future work in bringing our voluntary initiatives to life.

The Copyright Alert System is an educational program that en-ables copyright holders to notify consumers when their Internet ac-cess accounts are alleged to have been used illegally to download and share movies, music or TV shows over peer-to-peer networks. CAS notices are designed to be sent in a manner that respects users’ privacy, educates them about how to correct behavior, and offers them an independent review process to ensure that users ac-counts are not inadvertently misidentified as having been used to engage in digital piracy.

Each of the participating ISP’s CAS implementation has unique elements, but there are several common components. Notices of al-leged infringement are generated by copyright owners using a methodology that has been reviewed and validated by technology experts to capture whole works and avoid false positives. The copy-right owners forward notices to participating ISPs who, in turn, pass on individual notices to account holders in the form of copy-right alerts. Each alert is one way and no information about indi-vidual account holders is shared with content owners.

The program includes up to six alerts with a 7-day grace period between each, offering consumers time to identify the source of and take steps to correct infringing behavior. If a user reaches the final or what we call the mitigation stage, he or she becomes eligible to seek an independent review of alerts received. Administered by the American Arbitration Association, the process offers users the abil-ity to challenge alerts they believe were sent in error.

And finally, all of the alerts sent to consumers and CCI’s Web site offer information about how users can find content through the many legal services now available.

The CAS began operating early this year after nearly 18 months of research and development. Our research helped us understand what consumers do and do not know about peer-to-peer technology, and their level of understanding about copyright laws. We found that most consumers do not understand or appreciate concepts that many of us take for granted, and our mandate includes trying to

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enhance consumer understanding and change the conversation about digital copyright.

Our research indicates that one of the most important audiences for our educational effort is young people, and we have just com-pleted development of a new copyright curriculum that is being pi-loted during this academic year in California. The kindergarten through sixth grade curriculum is as a result of CCI’s partnership with the California School Libraries Association and iKeepSafe, a leading digital reading literacy organization. It introduces concepts about creative content in innovative and age appropriate ways to help children understand they can be both creators and consumers of artistic content.

A critical element of this entire initiative is our Consumer Advi-sory Board. The associations and companies that created CCI rec-ognize the importance of—that the success of the program, I am sorry, would depend in large part on whether it was fair to con-sumers.

Our advisory board provides an important oversight role and ad-vises the CCI board on consumer privacy, transparency and due process. Now that we have completed the challenging task of initial implementation, we are working on a system to evaluate the pro-gram’s impact and over the coming months we will look internally at the CAS and evaluate user response to the program. We will also look more broadly at the impact on peer-to-peer piracy and our educational initiatives.

We hope these self-assessments will allow the CCI to continue to enhance the effectiveness of the CAS and our central mission of promoting lawful ways to find and consume copyrighted content and educating users about the importance of respecting copyrights.

Once again, thank you for the opportunity to appear before the Subcommittee, and provide information on this unique effort among content owners and ISPs in consultation with consumer ad-vocates. The creation of the Copyright Alert System marks the be-ginning of a new age of cooperation and innovation.

[The prepared statement of Ms. Lesser follows:]

Prepared Statement of Jill Lesser, Executive Director, The Center for Copyright Information

Chairman Coble, Ranking Member Watt, Chairman Goodlatte, Ranking Member Conyers, Members of the Subcommittee, I appreciate the opportunity to testify today on the important issue of digital copyright. My name is Jill Lesser and I am the Executive Director of the Center for Copyright Information. I am particularly pleased to be testifying on the issue of voluntary initiatives aimed at protecting copyright in the digital age, a new area of cooperation and progress in a policy de-bate that has long been characterized by sharp differences of opinion.

The Center for Copyright Information (CCI) was established in 2011 as part of a ground-breaking voluntary initiative among the nation’s five leading internet serv-ice providers (ISPs) and virtually the entire movie and music industries. The agree-ment among the parties set out to stem the tide of digital piracy by accomplishing two goals: 1) establishing the Copyright Alert System (CAS); and 2) creating an or-ganization that could educate users about the importance of protecting digital con-tent, while offering them a better way to find movies and music online safely and legally. In the two short years since CCI’s formation, we have successfully imple-mented the CAS and have begun a series of educational efforts aimed at helping users make better choices about the way they enjoy digital creative content, while enhancing the ability of recording artists, filmmakers and television producers to be compensated for the compelling and creative programming they deliver.

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1 In partnership with MPAA and RIAA, the Independent Film and Television Alliance (IFTA) and the American Association of Independent Music (A2IM), the representatives of the inde-pendent music and film distributors are also participants in the CAS.

2 The CAS as an educational program does not require any ISP to terminate any account hold-er’s internet service. However, the program does not affect any obligations ISPs may have pur-suant to the DMCA, nor does it alter existing provisions in ISPs’ terms-of-service relating to illegal behavior using their accounts.

Still in its early stages, this voluntary cooperative initiative illustrates the impor-tance of multi-stakeholder, market-driven solutions to address the problem of digital piracy, and more generally, CCI and its members believe it can be a model for ad-dressing challenging technology policy issues through collaboration.

BACKGROUND

As the Members of the Subcommittee know well, the last 15 years have witnessed a sea of change in the creation and delivery of all manner of content to consumers. After many decades of distribution through channels easily managed by content owners, like records, DVDs and on-air broadcasting, the digital revolution has turned distribution models—and the ability to protect content against piracy—on their heads. While this wave of innovation in digital delivery wasn’t designed to un-dermine copyright protection, an unfortunate side effect has been the dramatic rise in piracy. Exacerbating the effects of these technological innovations has been the perception by a generation of consumers that content distributed over the internet is or should be free, and that the rules that apply to the physical world don’t apply to the virtual world.

Against this backdrop, representatives of the movie and music industries and major ISPs came together in 2009 to begin discussions that ultimately led to the creation of the CAS and the CCI. Those ground-breaking discussions focused on what the parties could do to stem the tide of piracy online, particularly through the growing use of peer-to-peer file sharing systems. After three years of negotiations, the nation’s largest ISPs—AT&T, Cablevision, Comcast, Time Warner Cable and Verizon—along with the Motion Picture Association of America (MPAA) and the Re-cording Industry Association of America (RIAA), and their member companies 1 signed the Memorandum of Understanding (the MOU) that established the frame-work for the CAS and the structure of CCI. The MOU was the first, and remains the only, purely voluntary, industry-led agreement of its kind.

THE COPYRIGHT ALERT SYSTEM

The CAS, which is overseen by CCI, is an entirely voluntary educational initiative that enables copyright holders to notify consumers when their internet access ac-counts are alleged to have been used illegally to download and share copyrighted movies, music or TV shows. Such notices are sent in a manner that respects users’ privacy, educates them about how to correct their behavior and offers them an inde-pendent review process to ensure that users’ accounts are not inadvertently misidentified as having been used to engage in digital piracy.

Importantly, the CAS is intended to educate consumers and is largely targeted to the casual infringer. Indeed, large-scale pirates looking to game the system will un-doubtedly be able to find other ways to engage in illegal activity. Our system, in-stead, seeks to inform and change the behavior of the vast majority of users who want nothing more than to enjoy the content they love when and how they desire. It is not intended to be punitive in nature but to assist users in finding digital con-tent legally and understanding the consequences of sharing content illegally over P2P networks.2

While each participating ISP’s CAS implementation has unique elements, the key common components of the CAS present in each program are as follows:

• Copyright owners use a methodology that has been reviewed and validated by technology experts to identify instances of copyright infringement over P2P networks and generate notices associated with particular IP addresses;

• Copyright owners forward those notices to the ISP to which the IP address has been assigned;

• The ISP, in turn, matches the identified IP address to a particular account holder and passes on the copyright owner notice to the primary account hold-er in the form of a Copyright Alert (Alert). Each Alert is a one-way notice and no information about the individual account holders is sent back to the content owners;

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• Primary account holders may receive up to six Alerts with a seven-day grace period in between each Alert to allow the consumer time to correct his or her behavior or to identify who in the household (or through an external hack of the account) might be intentionally or unintentionally engaging in copyright infringement;

• Within those six Alerts, there are three levels of notice—Educational, Ac-knowledgement and Mitigation—each designed to offer increasingly clear edu-cational messages about how the user can ensure his or her account is not used for illegal purposes and where and how to find legitimate, licensed sources of movies, music and TV shows;

• If a user reaches the Mitigation Stage, (which happens after receiving either three or four previous Alerts) he or she becomes eligible to seek an inde-pendent review of the Alerts received. Our review process, administered by the American Arbitration Association, offers users the ability to challenge the Alerts they received if they believe the Alert were sent in error.

The CAS began operating early in 2013, after 18 months of research and develop-ment. Each ISP invested significant resources to design its implementation of the CAS, including the creation of consumer interfaces that would not simply identify instances of digital piracy, but help users understand how P2P technology works, when its use might be illegal and how to find content legally and safely.

To support the companies’ work, the CCI engaged in consumer research that helped us understand what consumers do and do not know about P2P technology and their level of understanding about the copyright laws. We found that most con-sumers do not understand or appreciate concepts that many of us in the policy and legal communities take for granted—like the meaning of copyright. This research is helping us to better understand the drivers of consumer behavior around piracy and, we hope, will help us to improve the CCI’s effectiveness in communicating our messages and ultimately reduce the level of online piracy and increase content con-sumption through legal means.

CONSUMER ADVISORY BOARD

Another very important aspect of the CAS is our consumer advisory board. The member associations and companies that designed the CAS recognized that the suc-cess of the program would depend, in large part, on whether the program was fair to consumers and was perceived as such by the user community. While, the MOU signatories had worked hard to build in strong privacy protections, and to make each stage of the program (including the independent review process) fair, accurate and impartial, the participants recognized that external review and validation was critically important. Thus, the MOU provided for the establishment of a consumer advisory board, to be comprised of outside industry experts and consumer advocates, who would work with the CCI and its members to ensure that the interests of con-sumers were adequately considered and protected as the CAS was implemented. The consumer advisory board has provided and continues to provide an important oversight role and valuable advice to the CCI board on consumer privacy and other issues, including the building of a fair independent review mechanism for chal-lenging Alerts.

CCI’S EDUCATIONAL ACTIVITIES

CCI’s initial work has focused on implementation of the CAS and the creation of online support for the CAS, including helping users find better ways to access mov-ies, music and television programming. However, an equally important part of our mandate includes helping to change the conversation about digital copyright—to en-hance consumer understanding of and respect for creative content in the digital age.

Based on our research, we believe one of the most important audiences for our educational efforts is young people. As a result, we have developed a new copyright curriculum that is being piloted during this academic year in California. The kinder-garten through sixth grade curriculum, entitled ‘‘Be A Creator’’TM, is the result of CCI’s partnership with the California School Libraries Association and iKeepSafe, a leading digital literacy organization. The curriculum introduces concepts about creative content in innovative and age-appropriate ways. The curriculum is designed to help children understand that they can be both creators and consumers of artistic content, and that concepts of copyright protection are important in both cases. We hope to use this pilot period to enhance the curriculum and ultimately encourage schools across the country to integrate it into their digital literacy programs.

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EVALUATION

Now that we have completed the challenging task of the initial implementation of the CAS and begun expanding our educational initiatives, we are working on a system to evaluate the impact of this innovative partnership among content owners and ISPs. Over the coming months, we will look internally at the CAS in order to evaluate user response to the program, including the impact it is having on the be-havior of those receiving Alerts. We will also look more broadly at the impact on P2P piracy of the CAS and our broader educational activities. We hope these self- assessments will allow the CCI to continue to enhance the effectiveness of the CAS and our central mission of promoting lawful ways to find and consume copyrighted content and educating users of all ages about the importance of respecting copy-rights.

We are aware that stakeholders around the world are watching the program with interest and we have been sharing our lessons-learned so far when asked. We also stand ready to expand here in the U.S. to additional members and will continue to look for additional opportunities to raise awareness and that our educational mes-sages will expand consumers’ respect for copyrights beyond P2P software to other methods of online piracy.

Once again, thank you for the opportunity to appear before the Subcommittee and provide information on this unique effort among content owners and ISPs, in con-sultation with consumer advocates. The creation of the Copyright Alert System marks the beginning of a new age of cooperation and innovation, as we all work to stem the tide of digital piracy and enhance consumers’ ability to find the movies, music and TV shows they love in a safe and legal manner.

Mr. COBLE. Thank you, Ms. Lesser. Mr. Sherman.

TESTIMONY OF CARY H. SHERMAN, CHAIRMAN AND CEO, RECORDING INDUSTRY ASSOCIATION OF AMERICA

Mr. SHERMAN. Thank you. Chairman Coble, Ranking Member Watt, Ranking Member Conyers, Members of the Subcommittee, thank you for inviting me to testify today. I am Cary Sherman, Chairman and CEO of the Recording Industry Association of Amer-ica.

The creative industries are undergoing a complete digital trans-formation. It was not long ago the consumers had limited choices for accessing the music they wanted. Today, the music industry is leading the way beyond the physical CD, licensing hundreds of services worldwide offering tens of millions of songs with digital now making up nearly two-thirds of our revenue.

For the digital marketplace to truly work, we must ensure that these vibrant new services are not undermined by illegal activity. Voluntary initiatives with Internet businesses are a key component of that objective.

So what has been done? First, as Jill Lesser just discussed, the content community and major Internet service providers collabo-rated to address infringing activity over peer-to-peer networks, re-sulting in a new Copyright Alert System administered through the Center For Copyright Information.

Second, as Bob Barchiesi will describe, Visa, MasterCard, Amer-ican Express, Discover and PayPal and now others have collabo-rated with content and product owners to establish a process for terminating relationships with Web sites that persist in selling ille-gitimate products.

Third, with regard to advertising on the Internet, Randall Rothenberg will discuss the IAB’s new quality assurance guidelines for ad networks and exchanges. We applaud IAB for this effort, al-

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though we are a little disappointed that complaints about IP in-fringement do not yet affect certification.

Grand advertisers and their ad agencies and several ad networks have also established best practices to deter the advertising of products on rogue sites. Information from companies such as Mark Monitor, Double Verify and White Bullet can provide useful data and metrics to measure the effectiveness of these programs.

Fourth, as part of the rollout of new generic top-level domain names, ICANN recently passed a resolution requiring registrars to prohibit domain name holders from engaging in trademark or copy-right infringement or other deceptive practices and to impose con-sequences if they do, including suspension of the domain name.

Fifth, a series of principles relating to user generated content were negotiated by leading commercial copyright owners and UGC services. The parties addressed such issues as the use of effective content identification technology to eliminate infringing uploads, removing or blocking links to sites that are clearly dedicated to in-fringement, all while accommodating fair use.

So what is missing? Search engines are the roadmaps, indeed, the turn-by-turn directions to rogue sites online. They can be a key partner in addressing infringing activity, and yet there is no vol-untary agreement regarding search results. There is certainly many actions that could be taken. Google has tools in its Chrome browser to warn users if they are going to sites that may be mali-cious. Perhaps that technology could be used to warn users of rogue sites. Imagine if search results linking authorized content were la-beled with a certification mark or badge indicating that the site is licensed and actually pays royalties to creators. That educational message could have a profound impact on user behavior.

Similarly, there are no best practices for storage or locker serv-ices. Unfortunately, some storage companies appear to be the go- to host for rogue Web sites, and some locker services have an abun-dance of infringing content available for distribution.

The notice and take-down process under the DMCA would also benefit from collaboration. As interpreted by service providers and the courts, the law requires copyright owners to monitor millions of Web sites and networks every day and send detailed notices to all of them specifically identifying each and every individual in-fringing file and requesting that each be removed with nothing to prevent the same works from being immediately reposted.

Shouldn’t stakeholders sit down and negotiate practical solutions that will make notice and takedown more meaningful and effec-tive? For more stringent repeat infringer policies to takedowns that don’t automatically repopulate, many programmatic solutions can be devised. Also, voluntary activities today to focus on Web and wire line activity. With the rapid adoption of mobile devices, we need to focus our efforts on the mobile space and deal with unique challenges it presents.

We are encouraged by the growing support for voluntary initia-tives. We are grateful for this hearing which shines light on the current efforts underway. We urge the Subcommittee to do even more; to further encourage collaborations by using its good auspices to monitor data from ad verification companies to see whether the programs are working effectively, monitor best practices that may

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develop among registries and registrars to implement the ICANN resolution; encourage and facilitate discussions with search engines and locker services leading toward voluntary best practices; and convene discussions of practical means to improve the notice and takedown process under the DMCA.

Implementing voluntary initiatives will never be a silver bullet, but as reports have shown, taking action against infringing serv-ices can have a major positive impact on the usage of licensed serv-ices. Working together, we can grow legitimate commerce for every-one.

We look forward to working with this Subcommittee and all our partners in the Internet marketplace to make these initiatives a success. Thank you.

[The prepared statement of Mr. Sherman follows:]

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Mr. COBLE. Thank you, Mr. Sherman. Mr. Rothenberg.

TESTIMONY OF RANDALL ROTHENBERG, PRESIDENT AND CEO, INTERACTIVE ADVERTISING BUREAU

Mr. ROTHENBERG. Chairman Coble, Ranking Member Watt, Sen-ior Member Conyers, Members of the House Judiciary Sub-committee on the Courts, Intellectual Property and the Internet, thank you for the opportunity to testify at this important hearing. My name is Randall Rothenberg and as you heard, I am the Presi-dent and Chief Executive Officer of the Interactive Advertising Bu-reau and I am very honored to be here.

IAB is the trade association for ad-supported digital media in the United States. IAD’s more than 500-member companies account for 86 percent of the interactive advertising sold in the U.S. Our mem-bers include many of the recognized names, most of the recognized names of the media world, AOL, CBS, Facebook, Google, Microsoft, The New York Times, Time, Inc., Walt Disney, Yahoo among them, as well as scores of smaller publishers, advertising networks and specialists in such areas as digital video advertising and mobile ad-vertising.

I am also here for a personal reason. Prior to joining the IAB, I spent the first two-thirds of my career as an author and writer. I have written several books, hundreds of newspapers and maga-zine articles. I own hundreds of copyrights. I continue to be a con-tributor to many publications.

Having spent my career in the creation of intellectual property, I firmly believe the meaningful protection of intellectual property rights is the foundation on which the U.S. economy depends. As the Framers of the U.S. Constitution understood, if we wish to remain the world’s leader in innovation and entrepreneurship, we must re-ward both hard work and risk-taking through the protection of in-tellectual property.

On behalf of our member companies, IAB is dedicated to the growth of the interactive advertising marketplace. IAB drives to-ward this end by educating marketers, advertising agencies, media companies and the wider business community about the value of interactive advertising, and we recommend technical standards and best practices for this evolving marketplace.

In this regard, we are proud of our efforts to bring together the most significant representatives of this digital marketing supply chain to develop strong protections for intellectual property and greater trust in the digital advertising marketplace.

The vibrant online advertising ecosystem that was created by in-novative and legitimate individuals and companies has gained the attention of illegitimate actors that wish to undercut the market for creative content through the illegal activity of copyright in-fringement. This is a major reason, a foundation reason, the IAB developed the quality assurance guidelines that Mr. Sherman re-ferred to.

The guidelines were created to help establish trust between the buyers and sellers of advertising in a very complex and ever-evolv-ing digital advertising ecosystem. The program helps promote the flow of advertising budgets into digital advertising by establishing

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industry principles that offer a framework for increasing brand safety.

We consider the piracy of intellectual property antithetical to the concept of brand safety. For that reason, the IAB guidelines pro-vide specific prohibitions against selling certain types of adver-tising inventory, including ad inventory on sites involved in intel-lectual property violations such as Web sites hosting and streaming infringing copyrighted content, torrent sites and peer-to-peer sites.

In April of 2013, IAB released an update to the guidelines for public comment. This revision focuses on increasing the applica-bility, visibility and influence of the guidelines program as well as the advancement of other vital program elements. I would like to identify three important changes we made.

First, we took a program that was originally designed for ad net-works and exchanges solely and expanded it into a true multistakeholder process by including all buyers and sellers of digital advertising. The program will now represent the full diversity of the industry and reinforce the role all parties play in building a more accountable, transparent and safe marketplace.

Second, the guidelines now explicitly include an option for the lodging of intellectual property infringement complaints by rights holders to the IAB which will then direct the complaint to the rel-evant contact at each company participating in the guidelines. The IAB is committed to working with all parties to strengthen the pro-tection of intellectual property rights through the guidelines includ-ing through a strengthened complaints process.

Third, the program was also strengthened with the introduction of the option of independent third party validation of a company’s certification to create a new level of trust in the marketplace.

Going forward, we will continue to evolve, strengthen and drive adoption of the guidelines. The program has received a tremendous amount of exposure because of recent acknowledgments by Victoria Espinel, the former U.S. Intellectual Property Enforcement Coordi-nator. We would welcome additional public support from you and other Members of Congress.

Thank you for considering the views of the IAB on these issues. We greatly appreciate your focus on our work and the work of all the others on this panel to strengthen the protection of intellectual property and understanding the role of the advertising industry in creating additional strengths to those protections. Thank you.

[The prepared statement of Mr. Rothenberg follows:]

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Mr. COBLE. Thank you, Mr. Rothenberg. Mr. Levitt.

TESTIMONY OF GABRIEL LEVITT, VICE PRESIDENT, PHARMACYCHECKER.COM

Mr. LEVITT. Chairman Coble and Ranking Member Congressman Watt and Ranking Member Conyers, I am Gabriel Levitt, the Vice President of PharmacyChecker.com, which for the past 10 years, has been helping Americans find affordable medication from safe online pharmacies by checking and verifying the credentials of these pharmacies and posting price comparisons.

We believe that voluntary agreements can be a useful tool in pro-tecting Americans from counterfeit products, but they can also be misused in anti-competitive ways which scare and thwart Ameri-cans from accessing affordable medications. This leads to poor medication compliance with negative health consequences and also goes against the Administration’s desire that voluntary agreements not be used to impede competition. I will present recommendations which can keep this from happening.

Last year, 50 million Americans, ages 19 to 64, did not fill a pre-scription due to cost, up from 48 million in 2010, according to the Commonwealth Fund. We also know that nearly 5 million Ameri-cans have been buying their medication from outside the U.S. in order to get affordable prices because the cost to buy brand name medicine is often 80 percent lower in other countries than in the U.S.

Independent studies and over a decade of experience have dem-onstrated the safety of domestic and international online phar-macies approved in rigorous programs such as PharmacyChecker’s. A voluntary agreement of particular concern is one established by a group of Internet and credit card companies called the Center For Safe Internet Pharmacies, or CSIP. While CSIP has been effective at taking down some rogue pharmacies, it also acts to discourage Americans from accessing safe affordable medications outside the United States.

CSIP uses a company called Legit Scrips to help it identify rogue sites for takedown and to power an online tool for consumers to look up the status of an online pharmacy. Unfortunately, if you use this tool to look up any online pharmacy operating in any country other than the U.S., such as Canada, it will tell you that the phar-macy is unapproved, regardless of the fact that it may be licensed, require a prescription and safely selling only genuine medication.

The CSIP Web site has become a clearinghouse for information from the pharmaceutical-funded groups such as the Partnership For Safe Medicine and the National Association of Boards of Phar-macy with scare campaigns conflating all non-U.S. pharmacies with rogue pharmacies. In fact, any pharmacy outside the U.S. which sells to Americans is labeled by NABP as a rogue.

To keep voluntary agreements from misleading Americans, we ask that your Committee make sure that CSIP does not discourage Americans from accessing safe and affordable medication online. In particular, we would urge that the basis for defining a rogue phar-macy include any of the following, but not simply whether or not it is licensed in the U.S. It intentionally sells adult rated or coun-

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terfeit medication; sells prescription medication without requiring a prescription; engages in fraudulent and deceptive business prac-tices; does not follow generally accepted safety standards of phar-macy practice; and sells medication that is not regulated.

We would also like to see CSIP and other institutions established under voluntary agreements be more transparent by providing the following information: Clearly state what recourse companies and people have if their businesses are shut down by actions taken by CSIP; provide information on those sites that were shut down and the reasons they were shut down based on applicable intellectual property laws and identify the precise public health risk of the Web site.

Last, it is important to recognize that voluntary agreements are being afforded considerable market power. To ensure these powers are used properly, we recommend the appointment of an inde-pendent ombudsman to oversee these agreements. The ombudsman would analyze voluntary agreements to make sure private sector actions aren’t blocking Internet competition and are consistent with the Administration’s other goals of due process, free speech and transparency.

I have provided the Committee with a transcript of this presen-tation and included our public comments submission to the U.S. PTO in Exhibit A. Thank you for your time.

[The prepared statement of Mr. Levitt follows:]

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Mr. COBLE. Thank you, Mr. Levitt. Mr. Barchiesi.

TESTIMONY OF ROBERT C. BARCHIESI, PRESIDENT, THE INTERNATIONAL ANTICOUNTERFEITING COALITION

Mr. BARCHIESI. Chairman Coble, Ranking Member Watt, Mem-bers of the Subcommittee, thank you for the opportunity to appear before you today. I am proud to be representing the Intellectual AntiCounterfeiting Coalition and our partners from the financial industry. My testimony today will address our ongoing collabora-tion regarding the trafficking of counterfeit and pirated goods on-line.

With over 230 members that span across industries, the Inter-national AntiCounterfeiting Coalition is one of the world’s largest organizations representing the interests of companies concerned with trademark counterfeiting and intellectual property theft.

While legitimate retailers increasingly leverage the Internet as a platform for sales, the same is true of counterfeiters. Once confined to brick and mortar shops, the Internet has created new opportuni-ties for the sale of illegal goods as well as an ever-widening pool of customers. Additionally, the shift to online distribution has raised a variety of practical difficulties for our enforcement against criminals who operate with anonymity and beyond the jurisdiction of U.S. courts or law enforcement.

The proliferation of this illicit trade threatens consumer con-fidence in the legitimacy of the Internet as a commercial platform. Consumers expect and deserve the honest cooperation of all of the players in the e-commerce ecosystem. That point of view has driven our partnership with the financial industry and informed the devel-opment of our ongoing collaboration.

In January 2012, the IACC launched its payment processor pro-gram in collaboration with some of the largest multi-national brands and leading financial companies. This launch followed the establishment of a set of best practices facilitated by the Adminis-tration’s Intellectual Property Enforcement Coordinator, Victoria Espinel.

The program is, in laymen’s terms, a ‘‘follow the money’’ ap-proach that seeks to diminish the ability of criminal counterfeiters to turn a profit. Our program is dependent on the financial part-ners’ policies which prohibit merchants from using financial serv-ices for illegal transactions. Merchants that sell counterfeit goods violate those policies and as such, subject themselves to remedial action, including termination of their merchant accounts. Because those policies apply to merchants regardless of their jurisdiction, the program has a global reach.

At its inception, the IACC and its partners identified several goals for the IACC payment processor program. These include in-creasing the cost of doing business for and decreasing the profits to the counterfeiters; shrinking the universe of merchant banks willing to do business with those sellers; facilitating an efficient use of resources by both rights holders and our financial partners; and dismantling counterfeit networks by developing deeper intel-ligence on those networks’ methods of operating.

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In the context of these goals, the program has been a resounding success. We have referred nearly 7,500 Web sites for investigation, resulting in the termination of over 2,100 individual counterfeiters’ merchant accounts which likely correspond to a much higher num-ber of affected sites.

The collaboration between the IACC and its partners has re-sulted in opportunities to provide training to banks and others all around the world. While there remain challenges to quantifying the impact of this program on the overall availability of counterfeit and pirated goods online, there is significant anecdotal evidence that online sales of such elicit product are becoming more difficult.

Further, the program has created a growing pool of data that may be leveraged by both public and private sectors. Since the launch of our program, we have seen a number of trends, including a decline in the use of traditional credit card payments in favor of alternate payment methods; the misuse of anti-fraud measures in an attempt to thwart legitimate investigations by law enforcement and private industry; and the shift from the use of individual mer-chant accounts to reliance on illegitimate and sophisticated pay-ment service providers who provide full service infrastructure for illegal sales and promise bulletproof processing.

It is our hope that this paves the way for further cross-industry collaboration. The success of this program proves that when rights holders and others work side-by-side to ensure a safe and trusted marketplace, everyone wins.

[The prepared statement of Mr. Barchiesi follows:]

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Mr. COBLE. Mr. Barchiesi, I know you weren’t advised that you were going to be here until rather late in the game, but you brought it up to speed. Folks, we try to apply the 5 minute rule to ourselves so I will keep my questions in a very terse way.

Mr. Sherman, are voluntary agreements a better approach to solving issues in lieu of legislation for companies that want to do the right thing on the one hand in contrast to companies that sim-ply want to take advantage of intellectual property owners?

Mr. SHERMAN. I am sorry, I heard the first part of the question but not the last.

Mr. COBLE. Are voluntary agreements a better approach in re-solving these problems?

Mr. SHERMAN. I have been a big fan of voluntary agreements. We have seen what happens with legislation. We are carving in stone certain standards, certain processes, certain expectations, and ev-erybody gets nervous on each side. It becomes very, very difficult to agree on that.

With voluntary agreements, you can be flexible. You can agree on things, knowing that they can change without going back to Congress. You have the ability to learn from the marketplace what is working and what is not and modify the agreement, so there is flexibility, there is an ability to change as you go, and there is an ability to learn from experience. I think it makes people a lot more willing to try things and it begins to build trust.

So, yes, I think that for a start, voluntary measures are a great way to begin basically closing the gap between the business side of the Internet and the content side of the Internet.

Mr. COBLE. Thank you, Mr. Sherman. Ms. Lesser, what role, if any, should the U.S. Government agen-

cy exercise with these arrangements are being negotiated while they are in effect?

Ms. LESSER. I am sorry, Mr. Chairman, what role are the agen-cies playing now?

Mr. COBLE. What role should there be, if any, for U.S. agencies while these agreements are playing out or are in effect?

Ms. LESSER. As several of the witnesses have said, you know, the leadership of Victoria Espinel, when she was the Intellectual Prop-erty Enforcer at the White House, was very, very important and continued to be important not only as the negotiators came up with this agreement, but as we moved toward implementation.

I think as Federal agencies, Congress has a very important over-sight role in helping us do what we want to do well. At the same time, as we look to evaluating the program and what changes need to be made, we are doing that on an ongoing basis, and as Mr. Sherman just said, we are very able to be very nimble and respond to the needs of the program on really a regular basis.

So I think oversight should continue. There should be hearings like this. I don’t think there should be a rubric where there are consistent requirements for voluntary programs to report to the government however.

Mr. COBLE. Mr. Rothenberg, what say you to this? Mr. ROTHENBERG. It would be very hard for me to improve on the

way Mr. Sherman articulated, although I am forced to try a little bit. But the voluntary agreement, self-regulation by industry has

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the benefit of being able to be more flexible in the pursuit of its objectives. Legislation and regulation have a tendency to fix in stone certain methods by which infringements have to be identified and punished. And technology, especially the infringers and espe-cially those infringers outside our borders, will find new ways to evade them. It can be much, much more effective, certainly in the short and medium term, to get widespread adoption of voluntary agreements, in turn, industry participants, especially the largest and the most legitimate industry participants, into the police of the industry itself. We think that could uncover lots of infringements and help create a self-reinforcing system of abeyance.

Mr. COBLE. I thank you for that. Mr. Levitt, do you want to weigh in on this?

Mr. LEVITT. Once again, I think that commonsense voluntary agreements can be helpful. I come with a perspective that over time you could see entrenched interests who come together in car-rying out these voluntary agreements could take actions that will stifle the emergence of other companies if there is not oversight. So I think that all of the people here have given good examples of how voluntary agreements can work and have worked, but there is an inherent risk when you deputize the private sector to take on a roll that I think you guys, I am sorry, you had tried to do through pass-ing other laws, and I think there should be some oversight, there should be an independent ombudsman who is reviewing all of these voluntary agreements to make sure that they are transparent and not stifling competition.

Mr. COBLE. Well, my red light has illuminated, so I will recog-nize Mr. Watt from North Carolina.

Mr. WATT. Thank you, Mr. Chairman. As has been my practice, I am going to defer and go last in the queue and defer to Mr. John-son. Mr. Conyers disappeared on me. He was there and then he disappeared.

Mr. JOHNSON. Well, your pause gave me a moment of concern. Mr. WATT. You mean, you thought I had forgotten your name? Mr. JOHNSON. Or something worse. Mr. WATT. I defer to whoever this guy is. I defer to Mr. Johnson

and I will go last in the queue. Mr. JOHNSON. Thank you, Mr. Ranking Member, and thank you,

Mr. Chairman. Today’s hearing represents another opportunity for this Sub-

committee to discuss how innovative market-place solutions are protecting copyright holders. Recently the White House Office of the IP Enforcement Coordinator joined with Google, Yahoo, AOL, Microsoft and the Interactive Advertising Bureau and other ad net-works to announce the completion of voluntary best practices guidelines for ad networks to address piracy and counterfeiting. These industry guidelines are also the product of several years of coordinated efforts and represent a follow-the-money approach to stopping rogue sites dedicated to intellectual property theft.

To demonstrate the magnitude of this problem, in 2012, Google disabled ads that served 46,000 sites for violating Google’s policies on copyright infringing content. Google shut down more than 82,000 accounts for attempting to advertise counterfeit goods,

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which were almost entirely discovered through Google’s engineer-ing to protect copyrighted works.

So I want to—and I also commend Victoria Espinel, the former U.S. Intellectual Property Enforcement Coordinator, on her hard work during her tenure.

Needless to say, copyright theft hurts everyone. Songwriters and artists depend on royalties for their livelihood and companies de-pend on protection so that they can make new content and prod-ucts, and consumers want to know that when they purchase a good that it isn’t counterfeit.

Alarmingly, a recent study commissioned by NBC Universal indi-cates that copyright infringement grows proportionally with Inter-net usage. But this isn’t altogether surprising. There is a strong temptation to illegally download a copyrighted work without acces-sible alternatives to infringement. Regardless, there are serious challenges that continue to face movie studios, music companies and other industries.

Mr. Sherman, please describe some of the challenges facing art-ists, producers and songwriters, and also how does copyright in-fringement affect the ability for music labels to cultivate new and unproven talent?

Mr. SHERMAN. Well, the challenge is how you make a living when one of the basic forms of revenue for musicians, songwriters, publishers, labels is basically going away as people are able to get for free what they previously had to pay for. It just means that you are going to be doing a lot more live touring. You are going to be looking at alternative revenue streams. You are no longer going to be relying on CD sales or downloads in order to make a living. And because live touring is a hard life and because these alternative revenue streams are growing very slowly, it means the opportuni-ties to be able to make a living in music is compromised.

Hopefully it will get better, and certainly the Internet has pro-vided a level playing field where any musician can find a world-wide audience, so there is great opportunity. There is just a lot of difficulty in monetizing that opportunity so that you can actually eat and raise a family and send your kids to college.

So it is tough. And the labels, which are now 40 to 50 percent the size that they used to be, and about 40 percent the number of employees, have less money to invest in new artists. They have less money to promote them, less money to market them and less money to keep them on the label hoping that the next album will do a little bit better or the third album will do a little bit better. It is just a much tougher business.

Mr. JOHNSON. I see. So becoming a full-time musician, song-writer, performer, is getting much more difficult, and for the labels to be able to exploit that talent, it is very difficult to do when all of your product is being distributed in a way that you cannot col-lect any revenue from?

Mr. SHERMAN. Exactly right. Mr. JOHNSON. So how has this access to illegitimate means of

capturing this content, explain the consumer behavior that is be-hind that?

Mr. SHERMAN. Consumers, especially the younger generation, have grown up to believe that anything on the Internet is free. It

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is the way it started and it has become an expectation. It is some-thing that has to change over time, not only for music, but for all the content industries to be able to flourish, and I think it will change over time, but it will take awhile until there is a cultural shift on that.

So at this point the ease with which a music fan can get an ille-gal copy of music or illegal streams of movies or television shows has basically changed the expectation with respect to the value of music and entertainment. And that is a devastating thing when the value of music and other forms of entertainment are killed off because at that point, the pricing that legitimate services can charge becomes not enough to support the infrastructure necessary for investment and artists, new content, movies, television shows and the like.

Mr. JOHNSON. Thank you, Mr. Chairman. Mr. COBLE. The gentleman’s time has expired. The distinguished gentleman from Texas, Mr. Poe, is recognized

for 5 minutes. Mr. POE. Thank you, Mr. Chairman. Thank you all for being

here. There is a phrase that brings fear and trepidation into the hearts

and souls of men and women across the country and that is ‘‘We are from the government and we are here to help you.’’ Whether it is a business or whether it is an individual, I mean, I have al-ways thought that and I am part of the government and I really think that now, that that is a great concern among people.

We have in your all’s situation a process that is working where different entities get together and follow contract law, something that is preserved in the Constitution, the right to contract.

I think it is working fairly well in your situation. My question is does the government—should we legislatively now

jump in the middle and sort things out and make it better? I mean, by ‘‘better,’’ I mean that facitiously. Would it make it worse, or would it make it better? Or should we continue to encourage the ability to contract and work out in the marketplace disagreement and compromise, something that we don’t do too well here, Con-gress, compromise.

So I just kind of open that question up, and I would like to hear all five of your opinions on that role of government, if any. Ladies first.

Ms. LESSER. Well, I will speak from the perspective of my pro-gram, which, as I said during my testimony, has only been in oper-ation for 6 months. I think what we found during the implementa-tion process, which took more than 18 months, was that the nego-tiators who were at the table for 3 years coming up with the frame-work for our contract, our Memorandum of Understanding, and for the copyright alert system, didn’t really know all of the elements that should ultimately go into the program. And so the 18 months we spent doing research, looking at the implementation, looking at the words in the contract, and in some cases changing those words so that we could make sense of the implementation, I think shows me that that collaborative process really allowed us to respond to the needs of the marketplace, to be flexible, and, most importantly, to work with our consumer advisory board.

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Many people on that advisory board were really the people sit-ting across the table from the content industry during the re-nowned SOPA debate, and here they were at a table with us envi-sioning and constructing a program that we think is working well.

Now, we only have 6 months under our belt, so the next part of the answer is that we have to wait and see. We are already—I will give you an example. We have, as I said, an appeal process. The American Arbitration Association is overseeing that process. So if a consumer thinks that an alert has been sent in error, and they file an appeal, the American Arbitration Association is assigning copyright lawyer neutrals to adjudicate that appeal, not in a tradi-tional sense of adjudication, but within the confines of our pro-gram. What we found early on is that indications were that our de-fense explanations were not that clear. And so immediately——

Mr. COBLE. Ms. Lesser, if you could wrap it up. Ms. LESSER. Within a month we went back in and redid those

defense explanations. So we are changing the program as we go. Mr. POE. I want everybody to answer that question. Now, you all

are down to a minute, 25 seconds apiece or so. So, Mr. Sherman. Mr. SHERMAN. Do not underestimate the value of government en-

couragement. I certainly understand the difference between legisla-tion and the imposition of rules. But the role of encouragement can be very, very helpful in getting parties together.

Mr. POE. Get it done, or we are going to do it. And then everybody’s going to be——

Mr. SHERMAN. That often helps. Hopefully it won’t be necessary, but it does help. So encouragement is important.

Mr. POE. Okay. Mr. Rothenberg. Mr. ROTHENBERG. Sir, the ad-supported Internet contributes

$530 billion to the U.S. economy. It is responsible for about 5.1 mil-lion jobs. Those are based on platforms that have been built on the backbone of the Internet, platforms like eBay and Facebook and Google. They are responsible for jobs. One of most important things this Congress can do is promote our voluntary guidelines in global trade agreements to assure that the rest of the world doesn’t shut down these platforms irresponsibly.

Mr. POE. Thank you. Mr. Levitt. Mr. LEVITT. I would like to answer that how I think a consumer

will—what they might want you to hear. There is a group called RX Rights. That is RxRights.org. It is a coalition that has about 40- to 50,000 people, and they buy drugs, often from Canada, online from verified and safe sites. They don’t want the government stop-ping them from being able do that, because they know that it is safe because that is what they have been doing. And I think there has to be a balance when we are taking actions to shut down sites selling counterfeit drugs that we don’t overreach where real people end up getting hurt because they can’t afford their medications.

Mr. POE. Lastly. Mr. BARCHIESI. We firmly believe in the efficacy of voluntary

agreements and this proof of concept. What we do, it works. Our partnership with the financial industry works. But the operative word is it takes a willingness on the other party’s side to work to-gether, roll your sleeves up and get it done. We were able to go

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over to China and recently put together an agreement with Tow Bow and Alibaba Group.

So I think there is a role with government. I am a bit frustrated that I can’t go over to—in California to Google and do the same thing. So I agree with Cary Sherman that I think there is a role for government to play to help encourage these groups to get to-gether and get it done.

Mr. POE. Thank you, Mr. Chairman. Mr. COBLE. The gentleman’s time has expired. I am pleased to recognize the lady with whom I cochair the Cre-

ative Rights Caucus, the distinguished lady from California, Ms. Chu for 5 minutes.

Ms. CHU. Thank you, Mr. Chair. Before I begin, I would like to submit testimony for the record

on behalf of the Copyright Alliance on the role of voluntary agree-ments. The Copyright Alliance has been a great advocate for the rights of individual creators. So I am happy that they are weighing in on this very, very important hearing. And so that is this. And I would also like to submit for the record this study entitled ‘‘Un-derstanding the Role of Search in Online Piracy,’’ commissioned by the Motion Picture Association of America. This report indicates that search engines play a facilitating role, even if inadvertently.

Mr. COBLE. Without objection, they will be received. [The information referred to follows:]

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Ms. CHU. Thank you. This morning Mr. Coble and I did indeed participate in a press

conference with the Motion Picture Association for the release of this study that found that search is a major gateway to the initial discovery of infringing content online. In fact, 74 percent of con-sumers surveyed cited using a search engine as the navigational tool that they use to find infringing content for the first time.

And so I would like to ask Mr. Sherman or Ms. Lesser, we know that the largest search engine, Google, made an effort last year to change the algorithm to take into account the number of copyright takedown notices the site has received, which is a positive step, but we have a long way to go. Unfortunately, there isn’t anyone here today to represent them. But could you give your thoughts on what more search engines can do to reduce online infringement? What proactive steps do you think they could take?

Mr. SHERMAN. There are lots of practical steps that they could be taking when you think about the various ways in which search is leading people to infringing content. They did promise to demote sites that received a lot of takedown notices. We were very taken with that approach. We commended it. But 6 months, a year later, we have seen basically no difference whatsoever. The most rogue of rogue sites are still showing up on the first page of search re-sults. We have sent about a million and a quarter notices on one site called MP3 Skull, yet it still shows up regularly on the first page of search results. Clearly, even though their intention was good, it hasn’t been implemented well.

We also think they could be promoting more effectively, pro-moting the legitimate sites. I mentioned before the possibility of a certification mark or a badge. If we can provide a white list of sites that are licensed and actually pay creators, and they could put an indication like that in the search result, it could make a huge dif-ference in the way that consumers use the search engine.

They could provide warnings about rogue sites. Just like they do when they encounter malware on a site in their own browser, they give a warning notice. Maybe they could do it with respect to rogue sites that are identified by third parties as sites they should be suspicious about.

They could also do things about autocomplete. Right now, if you enter in the name of an artist and a track, it will suggest to you MP3. And if you click on MP3, it will give you basically 6 to 8 ille-gal sites in the first 10 results.

And also the fact that we are sending millions of notices, and they are just going right back up again without any limitation. We send 100 notices about URLs with the same song on the same site, but you would think, therefore, that the other 1,000 songs on the same site would be taken down. But, no, we have to send each one individually.

We ought to be able to sit down and work out more efficient means for us and for them and for the piracy problem generally. There is a lot of motion, but what we need is impact.

Ms. LESSER. The only thing that I would add, since my program applies primarily—exclusively really at this point—to peer-to-peer is that I think when the negotiators who came up with this Memo-randum of Understanding first sat down, there was very little opti-

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mism about the ability to get not only to a sense of agreement, but also to actually create an existing real program that is changing consumer behavior. So I would say to Google and other search en-gines, it is important to come to the table and not see this as an ‘‘us versus them.’’ This is a problem that we all need to solve. And the 5-year dialogue and agreement among these parties is just evi-dence that can be done.

Ms. CHU. Let me follow up and talk about the copyright alert system, which is a successful voluntary system where ISPs alert Internet subscribers when they have downloaded pirated content and point them to legitimate sites. It is successful because, for one thing, the largest ISPs committed a significant amount of their own resources to this effort and invested significant resources to its de-sign. And, secondly, the voluntary initiative took into account the views of all the key stakeholders.

While it is a great step forward, it does have limited impact un-less other players like search engines get involved. How could they be integrated into this system? Mr. Sherman, you have ideas on that?

Mr. SHERMAN. Well, the copyright alert system is really based on peer-to-peer piracy, which is not something where search has a big role to play. So the ISPs are the appropriate party for that kind of operation. But because we have been more successful with peer- to-peer, because peer-to-peer has actually declined, other forms of piracy are increasing, Web site piracy, and certainly search engines would have a huge role to play there, one of the reasons we would like to be able to sit down with a multistakeholder process and see if we can come up with some improved mechanisms.

Ms. CHU. Thank you. I yield back. Mr. COBLE. Gentlelady has expired—time is expired. The distinguished gentleman from Georgia Mr. Collins is recog-

nized for 5 minutes. Mr. COLLINS. Thank you, Mr. Chairman. I appreciate the oppor-

tunity to be back here. And seeing this panel, it reminds me of one of my favorite movies of all time, ‘‘Groundhog Day,’’ because we see you here again as we go through this.

Mr. Chairman, I would ask unanimous consent to enter Google’s report on how they fight online piracy into the record.

Mr. COBLE. Without objection. [The information referred to follows:]

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Mr. COLLINS. And would have also entered the Motion Picture of America’s filing as well, but my distinguished colleague, Ms. Chu, beat me to it.

Mr. COBLE. Without objection. Mr. COLLINS. As we look on this. To the witnesses, I would like to thank, you know, all for being

here. I have listened a great deal. I have been listening even out of here in a meeting for—and holding this hearing. I believe we have got to continue to examine the volunteering issue before the industry, because I believe they are a step forward. In considering any legislative remedies, we need to see what is already being done, because the last thing I would like to see is just come again. What I think we do too many times in all forms of government, from local to Federal, is we rush in with the, quote, ‘‘legislative fix,’’ and then all of a sudden that fixes it for all of 6 months. And then somebody is not happy, let us fix it again. We have got to have some common sense here.

And also, I think, a little bit of marketplace issue as well. Gov-ernment will not, cannot, and should not solve all of your problems. You need to get this right, and you need to get it together volun-tarily, and then, as is spoken of just a few minutes ago, then gov-ernment can step in where need be and help the process along.

In looking at this, I am encouraged by what I am hearing and have been encouraged by some meetings that I have had even this week. But I believe there is still a lot of work that needs to be done. In fact, even this morning, did a quick Google search for ‘‘Parks and Recreation’’ episodes online, and at the bottom of the search results on the first page, I read this: ‘‘In response to a com-plaint we have received from the U.S. Digital Millennium Copy-right Act, we have removed one results from this page. If you wish, you may read the DMCA complaint that caused the removals or re-moval at chillingeffects.org.’’

Okay. There is a little bit of a political comment right there. That is fine. I get it. And, look, I would like to have Google here to discuss this.

Now, in full disclosure, I have talked to Google this week in one of their offices, and we have brought up some of this as we went along, because I think they have an already important role that search engines play in this and the possibility that they can really dramatically alter the online piracy landscape for the better.

However, I am concerned that maybe we are not addressing this or investing in this as much as we should. In fact, I want to go to you, Mr. Sherman, because out of your written testimony, you seem to indicate that they are not invested at all and, in fact, do not seem to be making any effort to promote legitimate options for streaming content. I just want to ask you, is that an accurate rep-resentation of your testimony?

Mr. SHERMAN. No, I don’t think so. I think Google has done things. My problem is that they are measuring their actions by how much stuff they are doing rather than the impact that it is having. When they run their own business, I doubt that if they keep a lot of people busy, they would regard that as sufficient. They probably want to make sure that it results in a meaningful revenue impact. We need the same thing.

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Mr. COLLINS. So you are saying quantity doesn’t always rec-ommend to quality.

Mr. SHERMAN. Right. Mr. COLLINS. Okay. Would others like to address this? I will

open it up to the rest of the panel, from Ms. Lesser all the way down. Anybody want to take a bite?

It is okay, guys. It is afternoon, you can laugh. Mr. COBLE. It is afternoon provided they beat the red light. Mr. COLLINS. Exactly. As we do that. They are saying, we are

going to get in under his minutes as we can. Here is the question. Look, I am going to actually give back a lit-

tle bit of my time today, because this is something that our office has been heavily involved with and will continue to be involved with.

I want to go back to my statement just a few minutes ago. This applies not only in this environment here. There is definitely a need for this Committee, and we will be heavily in jurisdiction with the fine folks from both sides of the aisle here looking at this. I think there are going to be ways that we can work to protect the owners and protect the rights and then still provide content, be-cause I believe by protecting those rights, you actually expand in-novation, you expand productivity, and we are going to be a part of that.

But I think what we also got to come to the conclusion here is that this is an issue that needs to be addressed, it needs all parties to the table, and to do so in a long-lasting way. So, again, to come here is voluntary agreements are fine. Those are what needs to be happening. We need to continue this discussion. But I am also not convinced this is going to be where it ends. So it will continue this process as we go further.

With that, Mr. Chairman, I yield back. Mr. COBLE. I thank the gentleman. The distinguished gentleman from New York Mr. Jeffries is rec-

ognized for 5 minutes. Mr. JEFFRIES. Thank you, Mr. Chairman. And let me thank the witnesses for your testimony today. It is clear to me that reasonable people should be able to agree

that online piracy is a significant problem, deserves to be ad-dressed. The people who create content, it seems to me, should have the opportunity to benefit from the fruits of their labor and encourages creativity moving forward. It is fair, and it is just as consistent with Article I, Section 8 of the Constitution designed to promote the progress of science and useful arts.

But it is also the case, I think, I believe, that the Internet has been a wonderful field of opportunity for entrepreneurship, for in-novation, for growth beyond which many could have even con-templated 15 or 20 years ago. And so we don’t want to do anything in the Congress certainly, or even in the business context, that lim-its the ability for that innovation and that growth and that entre-preneurship to continue to flourish on this field of opportunity called the Internet.

And you have got a lot of different players in the Internet eco-system, I gather. You know, you have the search engines, the ISPs, content creators, payment processors, ad companies.

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And so I guess I will start by asking Ms. Lesser, and then maybe Mr. Sherman and Mr. Rothenberg can weigh in, from your perspec-tive, what is the best way to get all of the individuals in this eco-system to work together in a manner that deals with the online pi-racy, that clearly should be a problem that we take seriously and confront, but also respects the Internet in a manner not designed to limit the opportunities that have been available through the in-novation and the entrepreneurship and the growth in this medium?

Ms. LESSER. What I would say from the experience that we have had thus far in our small group involving ISPs and the content in-dustry is that if you look at this in your silo, you are not going to find a solution. If we start from where you started with the Con-stitution, that there is a value in protecting creative content, some-thing that if you ask people on the street they agree with, some-thing that we are trying to teach to kids, I think if you start with that premise and you move down, what you find is that innovation and the development and the distribution of content cannot only co-exist, but can help each other. And I think what we are learning in our group, that there are benefits to both.

So our program is an educational program, is focused on the atti-tude toward creative content generally and then helping people find the legal ways that they can access content.

So I don’t think that it should be as hard as it is. And it is based on, you know, 15 years of back-and-forth in the policy arena, in the business arena. But everything is really moving toward the same place, and I think once this group came to the table, it was very clear that their interests were aligned, which is why you see com-panies like the five leading ISPs investing their own resources in this agreement and bringing this agreement to fruition.

Mr. JEFFRIES. Thanks. Mr. Sherman. Mr. SHERMAN. I think there is no substitute for dialogue, and I

mean nonthreatening dialogue where it isn’t over liability, it isn’t over responsibility; it is how you can work together.

When we engaged in conversations with the ISPs, we started in very different places, but we learned a lot from each other by just talking it through. And we brought in additional stakeholders who looked at consumer viewpoints, and privacy viewpoints, and so on. And the end of that stew was a process that everybody could buy into and support.

That is the kind of process I think we need to replicate with re-spect to multiple industry sectors to get lots of people involved in solving this. And as soon as you have two groups and three groups and four groups, more and more people will be willing to do it.

On the advertising side, because of the best practices that the ad networks and the IAB did, we have been contacted just in the last couple of weeks by a number of additional ad networks asking for our help and for information so that they could do a better job themselves. You get buy-in because you have had buy-in, and that is the process we need to get going.

Mr. ROTHENBERG. Again, thank you for the question, Mr. Jeffries. And, again, I can’t really improve on what Mr. Sherman and Ms. Lesser have said, but I will try.

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You can’t get them all in a room. There are hundreds of millions of people around the world that are part of the Internet ecosystem. The beauty of the Internet supply chain is also the great vulner-ability of the digital supply chain. It is basically open source. It al-lows for enormous innovation from the smallest players, but it also creates great vulnerabilities.

You can get the biggest and most significant players in the room to reach voluntary agreement. And as Mr. Sherman has said, that process, with encouragement from the Congress and from other bodies, can actually yield great results.

Importantly, one of the big changes over the past several years is that many of the biggest players in the digital technology indus-try have also become content creators. Google, Microsoft, AOL all are presenting slates of original digital video programming, and they are basing a very substantial part of their evolving business on being content creators. So they have stakes in this game on all sides.

I think working together among major stakeholder groups to cre-ate a coherent program in which all have skin in the game is the best way to go about it. Now, I would tell you that my ideal, and I am not necessarily speaking for all my members, but certainly what I would like to see happen is the development of some kind of Good Housekeeping Seal of Approval program for participation in the digital supply chain, so that buyers of digital advertising, for example, can look and see who is a legitimate player and who is not. I would like to see us push in that direction.

Mr. COBLE. The gentleman’s time has expired. Mr. Levitt, if you and Mr. Barchiesi wish to respond very briefly. Mr. BARCHIESI. From our perspective, I hear a lot about content,

but the International AntiCounterfeiting Coalition, we represent cross industries, there is health and safety issues, there is content issues. Ultimately again I will emphasize voluntary agreements work when there is willing partners. There is proof of concept. We have had this program for 2 years. And could I tell you 3 years ago, if I said I want to work with MasterCard, Visa, or American Ex-press, PayPal, MoneyGram, Western Union, they wanted to run me out of town. Now we host events together. We work together on public service messaging. I think it is a model that could be used and established in other arenas to move forward.

Mr. COBLE. Very briefly, Mr. Levitt. We are running out of time. Mr. LEVITT. Okay. Well, you know, Pharmacy Checker’s area is

not copyright content. It has to do with the purchase of medication online. And I just think it is important when we look at these vol-untary agreements that different areas should be treated dif-ferently.

Former Intellectual Property Enforcement Coordinator Espinel, I quote, ‘‘challenged the private sector to voluntarily address the health and safety issues presented by rogue online pharmacies.’’ And I just want to reiterate that this is the only way we should engage in this area for shutting down those sites that endangers a person’s health.

Mr. COBLE. Gentleman’s time has expired. I am trying to keep this train rolling. You know, of course, your

complete statements are in part of the record. So even though I

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may have been accelerating my pace at one time, your information will be read by all.

I am now pleased to recognize the gentlelady from California Ms. Lofgren for 5 minutes.

Ms. LOFGREN. Thank you, Mr. Chairman. And thanks to the panel for your testimony. And I remember just a short time ago, when we were having a

rather raucous discussion of SOPA, that the discussion was maybe we should follow the money, and it looks like actually some of that has occurred here, to good effect. So I want to congratulate those who have worked to try and find solutions. And I am sure there is lots more to do, but sometimes it is worthwhile to celebrate what has been achieved, not just complain about what yet remains to be done.

Just a couple of questions, and I don’t want these to be taken as opposition to making progress, because they are not. But one of the things that these voluntary agreements raise is the issue of due process for people who are legitimate, but maybe aren’t found to be legitimate. For example, and you said, Ms. Lesser, we start with the Constitution. Yes, we have a protection for intellectual prop-erty, copyright, and patent. But in the copyright arena we also have the First Amendment and the fair use doctrine. So how do we make sure that, I mean, people who are making fair use, that their rights are protected? How do you address that in your system?

Ms. LESSER. Well, that is one of the very important aspects of the system. As I said in my testimony, we developed a system that on the front end is very much focused on notifying consumers about copyright violations of whole works. So there is a methodology that has been put in place and streamlined so that we are very assidu-ously trying to avoid capturing works that are not covered by copy-right or that would fall into this fair use category. So on the front end, there has been a lot of work put into making sure there are not false positives.

At the end of the process, however—and our process does not end with really a punitive consequence; it ends with a heightened measure we call mitigation—but just before a user would have that mitigation measure imposed, they are offered the right to an ap-peal. And I put ‘‘appeal’’ in quotes.

Ms. LOFGREN. If I can interrupt. It is not that I don’t want to hear the whole thing, but we have limited time.

The user has interests, but the speaker also has interests, and the two are not always perfectly aligned. So if you are the speaker, and let us say you have a belief, maybe correctly or incorrectly, I don’t know, that what you are doing is a parity, or it is a political speech, or that it is protected, how do you protect your rights with-out relying on the Internet user to establish your rights?

Ms. LESSER. I am not sure that the protection of that right actu-ally falls within the program. The program itself assumes that an alert has been sent to an account holder, and that account holder has the ability to go during that appeal process and say, this file was a fair use.

Ms. LOFGREN. Right. Right. But what about the person who cre-ated the content that is being dinged? Are they being notified?

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Ms. LESSER. They are not. But I actually think the best way to protect people engaging in fair use is on the front end, which is to enforce copyrights against——

Ms. LOFGREN. Right. Ms. LESSER [continuing]. Protected files. Ms. LOFGREN. In terms of payment processing, I remember dur-

ing the SOPA discussion we had a substantial discussion about cut-ting off credit card payments for infringing sites. And I remember Visa, which is right outside my district, said that they would be happy to do that, but they were rarely ever asked to do so. And it sounds like that has changed considerably in the time that has processed. And I think that makes sense. But, again, for example, a notice and takedown, the person who has an opportunity to dis-pute that if they feel that it is incorrect.

You know, cutting off payments is a death sentence for a Web site. Do they have any opportunity to contest that if they think that there is an incorrect decision that has been made? What is the process for that?

Mr. ROTHENBERG. In our program, which is about cutting off or helping to choke off advertising revenues, it is basically an infor-mation system between the buyers and the sellers. They are the ones who are the trading partners; they are the ones in contract. We don’t have a consumer-facing side to it. And I agree with you that there needs to be some form of due process in there.

But by the same token, I think what we ought to be most con-cerned about are the largest and most persistent violators. I am less worried, although I, as you do, I worry about smaller players falling through the cracks deeply. But I think if we keep our focus on the worst violators and the most persistent violators, those prob-lems will not—the problem of the—the small fry being shut off will not be so——

Ms. LOFGREN. I just have one final question. I know from the study that was released this morning that about 30 percent—what was the number—37 percent of the searches for infringing content were searches for a domain name or a specific service, like Mega Upload or something like that. So at least, you know, a big chunk of the people that are looking for infringing content know what they are looking for, they are looking for infringing content, and not being confused.

So I guess that leads to the question, and MPAA isn’t here. What further efforts are being made to have digital content more freely available for a fee? And I will just give you an example.

You know, there was a movie. It is out on DVD now. I wanted to watch it streaming. I Googled it. The only place it was available were infringing sites. I won’t do that, but I imagine other people do. So the more that you could actually pay for stuff, the more that is out there, I think the less than honest people will infringe. So I am just wondering what further efforts are being made. And I think it is probably more for the movie industry than for the music industry.

Mr. SHERMAN. Certainly the music industry, we are almost two- thirds now of our revenues being digital. And all the music is out there, all the music is up there in every possible way. We think

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that movies and TV are getting there quickly. I can’t speak for that.

But that same survey that you mentioned also had a figure that 58 percent of the people were using search where they weren’t en-tering anything indicating they were looking for an illegal copy, but they were led to an illegal copy anyway, because search engines can be used for discovery. How did they find out about Mega Upload the first time? Now they know to go—no longer, fortu-nately—but how do they know to go to the Pirate Bay or MP3 Skull? Search takes them there. That is why we would like to work with them to try and find ways to address that.

Ms. LOFGREN. My time is up, Mr. Chairman. I don’t want to abuse the clock. Thank you.

Mr. COBLE. I thank the gentlelady from California. The distinguished gentleman from North Carolina Mr. Watt is

recognized. Mr. WATT. Thank you, Mr. Chairman. And I want to thank the

Chairman for having another hearing about this. I want to make sure that nothing I say gets misconstrued to imply that I don’t be-lieve in these agreements. I think they are great.

I am not sure I agree with Mr. Poe that all of this can be done without some government involvement. I suppose if private agree-ments worked to solve all criminal activity, it would be—we wouldn’t need any enforcement in the non-Internet world. I think we still need some help in this area.

And the magnitude of the problem, I hope, is going down, but I assume there is nobody on this panel who believes that this can all be done by private agreements. If there is, I certainly want to hear from them and give you the opportunity to express that opinion, because we need it on the record.

But you were getting ready to press your button? Mr. ROTHENBERG. I would just say, Mr. Watt, I think we would

all, or at least most of us, agree that we should start with the vol-untary agreements, and then where there are gaps that cannot be filled by the voluntary self-regulation, then and only then would we seek to fill them with legislation and regulation.

Mr. WATT. Okay. We started our SOPA discussions dealing with foreign sites. Has any of these private agreements dealt with that problem effectively? Can somebody address that for me?

Mr. BARCHIESI. The ICC’s program does deal with foreign sites because it doesn’t matter where in the world the site is hosted. These are contractual agreements between credit card companies and banks and merchants, and it has global terms to it, and they could terminate merchant accounts regardless of where they are, anyplace in the world.

Mr. WATT. And it is a voluntary agreement. Mr. BARCHIESI. Yes. Mr. SHERMAN. I think it is important to remember that the vol-

untary agreements are built on contractual relationships that al-ready exist. So Visa has contractual relationships with the people it serves that they will not process payments for illegal activities. So if illegal activities are called to their attention, and then they do their own investigation and confirm that, they have a contrac-

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tual right to terminate whether it is domestic or foreign, but it is under their own contractual relationship.

The voluntary agreement is simply providing a mechanism for routing all of these complaints through one portal to make it effi-cient, to not have duplication of efforts, to have a standardized sys-tem. That is the benefit of these agreements. It creates a mecha-nism for everybody to go forward in the same direction to address the issue in a similar way.

Mr. ROTHENBERG. And to your specific point about foreign in-fringement, again, we would be very much in favor of this Congress pushing in the direction of incorporating the frameworks that we are talking about into global trade agreements. Whether you call that public solutions, or private solutions, or a quasi public-private, there is definitely a role for the public sector there.

Mr. WATT. Another major problem that we were trying to solve with SOPA was the problem of repeat offenders. Sites that went up one day, got the DNCA notice, they got taken down, they were back up the next day, how the voluntary agreement is solving that prob-lem.

Mr. SHERMAN. That is one of the core elements that we would like to see in all of these agreements, like with locker services or search engines who—for example, there are mobile apps. We asked Google to take it down because it is clearly infringing. Google takes it down. They go up again a week later using a slightly different name, but it is the same app.

Repeat infringement policies there would make a difference where developers could be banned from the app store if they are going to continue to infringe.

Mr. WATT. But I guess my question is can that be done through a voluntary agreement?

Mr. SHERMAN. I don’t see why not. Mr. WATT. Who would be the parties to that agreement? Mr. SHERMAN. Well, the policy would be basically articulated by

whoever the platform is. It could be Google, it could be Visa, it could be a locker service. Basically saying that if you are——

Mr. WATT. Encourage them to come to the table and enter into that agreement, I guess.

Mr. SHERMAN. Exactly. Just that we are going to adopt as a best practice a repeat infringement police. For one company, it might be two; for another company, it might be five. But they are going to have a policy so that they don’t basically have the up, down, up, down, up, down process. But after a while they are saying——

Mr. WATT. So you would have a ‘‘three strikes and you are out’’ policy——

Mr. SHERMAN. Whatever number of strikes. Mr. WATT [continuing]. Or ‘‘five strikes and you are out’’ policy

that sometimes we apply criminal law. Mr. SHERMAN. After all, we are talking about people who are in

business, and they don’t want to be in the business of basically har-boring illegal content or dealing with the same problem over and over again, just like an ISP doesn’t want to have to deal with some-body who keeps violating their terms of service. They have an abso-lute right to decide who they are going to serve if they continue to engage in illegal conduct.

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Mr. WATT. Okay. Well, I do want to applaud everybody who has been parties to these agreements. I think it is great that the pri-vate sector and all of the parties are trying to solve a problem. I am not sure I believe you are going to be able to solve all of the problem that way, but I guess if we keep having hearing after hearing after hearing about whether something is necessary, maybe it at least keeps the focus on the issue.

At some point I think we are actually going to have to do some-thing other than have a hearing about it. So that is kind of where I come down on this.

But I applaud it. I applaud your efforts. I heard Mr. Levitt’s con-cerns about—and especially in the pharmaceutical area. But I en-courage all parties to continue to try to work toward these vol-untary agreements so that we don’t have to keep having the hear-ing after hearing after hearing, and ultimately so that possibly we don’t have to do anything that would involve the government being involved. Surely that would be the worst thing that could happen. We could disband the police if we had enough voluntary agree-ments.

So anyway, I yield back, Mr. Chairman. Mr. COBLE. Gentleman’s time is expired. I want to thank the very fine panel of witnesses. I also want to

thank those in the audience who have remained for this entire hearing. This indicates to me that you have more than a casual in-terest in this subject matter. And I thank all of you.

This concludes today’s hearing. Thanks to all of you for attend-ing.

Without objection, all Members will have 5 legislative days to submit additional written questions for the witnesses or additional materials for the record.

This hearing stands adjourned. [Whereupon, at 3:41 p.m., the Subcommittee was adjourned.]

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271

272

273

274

275

276

277

278

279

280

281

f

282

283

284

285

286

287

288

289

290

291

f

292

293

294

295

296

297

298

299

300

301

302

303

f

304

305

306

307

308

309

310

311

312

313

314

315

316

317

f

318

319

320

f

321

322

323

324

f

325

326

327

328

329

330

331

f

332

333

f

334

Links to Additional Material submitted for the Record

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